There are, I am sure, more than five credit mistakes to avoid when buying a house, but this list is a good place to start.
Thanks to HomeKeepr for the list to share.
First Credit Mistake: Not knowing what is in your credit file. I have been very surprised (as have clients) when judgements or unpaid collections have appeared on a few reports. Some of the time, it is an error, but it is an error that is better to be fixed prior to getting into the home buying process. If it isn’t an error, you can potentially set up a payment plan to get that negative information off your credit report. You can get a free credit report each year through annualcreditreport.com . Review it and work on getting errors fixed or that credit score up!
Second Credit Mistake: Applying for mortgages – having them pull credit and the like – over a long period of time. YES, you want to get pre-approved by a lender (ask your real estate professional for recommendations!) before you start seriously looking at homes and considering buying one. Your lender can give you an idea of what you can truly afford, what your approximate payments could be depending on the area, taxes, current interest rate, and loan type. These are VERY important to do BEFORE getting serious about buying a home. But actually shopping for a mortgage, after that initial meeting with a lender, should wait until you are under contract – because multiple “hard pulls” on your credit can ding your score – and potentially affect your ability to buy your home of choice.
Third Credit Mistake: Opening a new line of credit once you are under contract for a house. Yes, we have had this happen before, and until the items were canceled and the credit line closed, the buyers could not close on the house they wanted. Putting something on layaway, or not having it delivered until after closing, or “12 months free financing” STILL creates that debt on your credit. This could create a problem with your debt-to-income ratios before closing, and you could potentially be denied your loan – because you bought a washer and dryer or a couch for your new home. Before opening any line of credit or purchasing any large items before closing, call your loan officer to make sure this would be OK!
Fourth Credit Mistake: Maxing out your current credit lines. This goes along with #3 – using your available credit creates debt you are responsible for paying back. A lender takes this into consideration when determining your ability to pay your mortgage, and if your debt is too high compared to your income, you could end up not qualifying for the mortgage you have applied for. A final credit report is run right before closing – it will catch any new purchases or lines of credit opened!
Fifth Credit Mistake: Not forwarding your bills. This was mentioned above with the first credit mistake, like, did you forget the cable bill? Utilities? After you moved, did you pay that last bill? This comes into play after buying a home, too. You will want to keep that credit up – forward all bills to your new home, and pay them so you don’t have surprises later!
This list of credit mistakes to avoid is a very good start to understanding credit, and a part of the basic lending information to understand when you are buying a home. For more details about buying a home in Baltimore and how credit and lending affect moving forward, please contact me. I would be happy to help!